UK to raise corporation tax to pay for COVID crisis

LONDON: Britain will raise corporation tax to 25% from 19% from 2023 to help pay the cost of the COVID crisis, but has tempered the tax hike with a ‘super deduction’ to boost investment, Finance Minister Rishi Sunak said on Wednesday.

“The government is providing businesses with over £100 billion ($139.2 billion) in support to get through this pandemic, so it’s right and necessary to ask them to help with our recovery,” Sunak told parliament.

“Even after this change, the UK will still have the lowest corporate tax rate in the G7,” Sunak said.

Sunak said he would encourage companies to invest their cash reserves with a so-called “super deduction” to reduce their tax bill by 130% of the cost.

He said under existing rules a construction company buying £10m of new equipment could reduce their taxable income by £2.6m in the year of their investment, but with the ‘super deduction’ “, she could reduce it by £ 13 million.

“We have never tried this before in our country,” Sunak said.

Sunak quoted the Office for Budget Responsibility as saying it would increase investment by 10%; about £20 billion more per year.

“This makes our tax regime for business investment a true world leader, moving us from 30th in the OECD to 1st,” he said.

“It will be the biggest business tax cut in modern British history.”

The UK introduced corporation tax at a rate of 40% in 1965. It peaked at 52% in the 1970s.

In the 1980s the main rate was reduced to 35% under Margaret Thatcher, then in the 1990s from 35% to 30% and finally to 20%.

The rate was reduced to 19% from 2017 and was to be further reduced to 18% and then to 17%, but was kept at 19%.

Sunak said small businesses making profits of less than £50,000 a year would only be charged 19% – so around 70% of businesses would not be affected.

He also said the government would reduce tax on profits over £50,000 so that only companies making profits of £250,000 or more – around 10% of companies – would be taxed at the full rate of 25%.